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Back to The Cash Flow Business
What are "Cash Flow Notes" or a "Discounted Cash Flow"?
What is a Cash Flow Note?
"Cash flow" is an industry term used to describe the income stream or flow of cash generated from certain types of financial assets where the recipient or owner agrees to receive monthly or other periodic payments over time, based on a pre-determined payment schedule.
If that sounds confusing, DON'T WORRY. It is actually quite simple.
For simplicity's sake you can think of a cash flow note as nothing more than a formal version of an "I O U". They go by many names such as real estate cash flow notes, annuities, invoices, seller carry back paper, promissory notes, seller financed paper, owner financed contracts, accounts receivable or just plain "receivables". Whatever they happen to be called in your neck of the woods, they all serve the same purpose; they represent some sort of a financial relationship, private loan or other debt obligation between 2 parties.
The defining characteristic is that one party owes another party money that they have agreed to pay at some future point and they have a formal written agreement that establishes the debt obligation & the terms of payment.
What Are Cash Flow Notes?
Typical Example of a Real Estate Cash Flow Note: Person 1 has a house for sale. Person 2 wants to buy the house but can't qualify for a bank loan. Person 1 agrees to "loan" Person 2 the money by "carrying back a note". Person 2 pays Person 1 a cash down payment and then signs a promissory note and mortgage or deed of trust agreeing to pay Person 1 a specific amount of money each month until the debt is completely paid off. The note and mortgage are recorded with the county recorder and a lien is placed against the property to secure or "guarantee" the loan.
The note is a "future asset" because it represents money that will be paid to the owner in the future.
Some time passes and a good investment opportunity presents itself to Person 1. Person 1 decides they would prefer to have a large lump sum of cash to take advantage of the opportunity instead of continuing to receive the small monthly payments. It's as simple as that.
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The example above is generalized example of a private real estate cash flow note for sale and would include real estate secured promissory notes, mortgage notes, trust deeds, land contracts and mobile home promissory notes.
Examples of a discounted cash flow note:
- Real Estate Notes - resulting from any transaction secured by a piece of real estate (either residential, commercial or vacant land) using a note and mortgage, deed of trust or land contract
- Mobile Home Notes with Land - same scenario as real estate notes except the property is a piece of land with a mobile home or manufactured home attached to it
- Business Notes - resulting from the sale of a business and may or may not include real estate
Other examples of discounted cash flows:
- Structured Settlements - resulting from personal injury, wrongful death etc.
- Annuity Payments - resulting from investments or prize annuities
- Lottery Winnings - resulting from winning a lottery or casino jackpot
- Invoice Factoring - business to business invoices, government invoices
- Life Insurance Policies - Unwanted or unaffordable life policies can be sold for cash
- Retail Installment Contracts - Health club memberships, dentist / orthodontist
- Plaintiff Lawsuit Funding - Cash advances against pending lawsuit settlements
- Commercial Lawsuit Financing - Commercial litigation - Attorneys & Plaintiffs
- Attorney Lawsuit Loans & Law Firm Loans - Available to lawyers & law firms
- Credit Card Merchant Advances - Cash advance against VISA / Mastercard sales
- Inheritance Advances - Cash advances for people with inheritances in probate
Finding cash flow notes for sale isn't hard because they are ALL AROUND YOU!
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